Power Talks – Mortgage market recovering, but still a long way to go

The latest mortgage drawdown data from the Banking & Payments Federation Ireland show that the mortgage market continues to recover, but there is still a long way to go to reach a ‘normal’ market in terms of mortgage numbers and value.

Table 1 shows the volume or number of mortgages drawn down. In the first half of 2017, 14,939 mortgages were drawn down. This was 22 per cent higher than the first half of 2016. First-time buyers accounted for 48.7 per cent of the total market; movers accounted for 31.5 per cent; and the other three components accounted for the remaining 19.8 per cent of the market.

Table 1: Number of Mortgage Drawdowns

Table 2 shows the breakdown of the market in value terms. In the first half of 2017, the value of the mortgage market was €3.04 billion, which was 33 per cent higher than the first half of 2016. Lending to first-time buyers increased by 35.3 per cent and this component accounted for 47.2 per cent of the total market. Mover purchasers accounted for 37.7 per cent of the total market in value terms and expanded by 28 per cent in the first half of 2017.

Table 2: Value of Mortgage Drawdowns (€ Million)

Table 3 shows the average size of mortgages in the second quarter of 2017, compared to the second quarter of 2016. The average mortgage was 8.9 per cent higher than a year earlier, at €205,856.

Table 3: Average Size of Mortgage Drawdown

In 2016, 29,498 mortgages were drawn down and the value of the market was €5.66 billion. The market reached its unsustainable peak in 2006, when 203,953 mortgages were drawn down and the value of the market was €39.87 billion.

For 2017, it is likely that the mortgage market will see close to 37,000 mortgages drawn down and the market value is likely to be around €7.6 billion, which would represent an increase of over 34 per cent on 2016.

While the mortgage market is in strong recovery mode, it is still a long way away from what would be regarded as a market size consistent with Ireland’s current housing requirements. A market size of around €15 billion would be required to be termed a ‘normal’ market. The market this year will be less than half that size.

However, rather than a lack of mortgage availability, the key constraint on the market at the moment is the lack of housing. Getting mortgage approval is getting easier as the lending institutions are coming back into the market in a relatively aggressive and competitive way, but the lack of availability of housing is preventing approvals from converting into actual drawdowns.

Hence, for the mortgage market to return to a sustainable level, housing supply will have to increase substantially. This will take a long time to happen.

Jim Power,
Chief Economist,
Friends First

The views and opinions expressed in this article are those of the author.